Soviet voodoo economics

January 30, 1991|By The New York Times

IN A FIT of pure pique at his country's deepening economic morass, President Mikhail S. Gorbachev has decided to crack down on both profiteers and inflation by withdrawing all 50- and 100-ruble bank notes in circulation in the Soviet Union.

It is a harebrained scheme that would be laughable, were it not the latest symptom of a malaise that could prove terminal for Gorbachev. As such, it's no laughing matter for him or the rest of the world.

Gorbachev, as he himself has conceded ruefully, is weakest on prescriptions for his tumbledown economy. Calling in large-denomination bank notes is not going to stop black-market profiteers. They will switch to other forms of exchange. Besides, the black market is one of the more efficient parts of the Soviet economy.

And trying to stem inflation by taking away big bills is a little like trying to encourage energy conservation by allowing motorists to buy only one gallon of gasoline at a time. More worrisome is the plan's provision that allows Soviets to exchange a limited quantity of large-denomination rubles for smaller bills -- one time only -- before the large bills are invalidated. That would wipe out the savings of hundreds of thousands of Soviet citizens, in particular pensioners, who do not trust the state's banks and have the ingrained habit of stashing rubles in mattresses. The result: deflation by depletion, a painful remedy at best.

This naive plan is hardly a substitute for the monetary reform the Soviet Union desperately needs, or for on-again off-again structural reforms that need to be kept on. Gorbachev's best economic thinkers are leaving his government, protesting loudly and publicly about his dithering on reforms. And the Soviet Union's ship of state is a Titanic heading for the iceberg, while Gorbachev is busily rearranging the deck chairs for one last look at the sunset of perestroika.